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Oil Prices Fall After OPEC Extends Output Cut--Update

Crude prices fell Thursday after major oil producers extended output cuts by less than some investors had hoped.

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The Organization of the Petroleum Exporting Countries on Thursday renewed an agreement to withhold some crude-oil supplies into March 2018, people familiar with the matter said, doubling down on its bet that it can raise prices despite soaring output from American shale producers.

Brent crude, the global benchmark, fell more than 1.4% to $53.19 a barrel for June delivery, while West Texas Intermediate dropped around 1.9% to trade at $50.41 a barrel.

Thursday's agreement will extend by nine months a deal made at the end of last year to cut oil production. Speculation of how OPEC and other major producers might extend that deal, and whether they would promise deeper cuts, has moved markets throughout the year.

The oil price is likely to remain volatile through Thursday, with non-OPEC producers, including Russia, slated to meet with the cartel to decide on their own output levels later in the day.

Oil prices had already edged down earlier, reversing gains in Asian trading hours, when Saudi energy minister Khalid al-Falih's said it was "highly likely" this would be the decision of OPEC, which is meeting in Vienna.

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The Iranian oil minister said earlier that crude priced between $55 and $60 a barrel is right for both OPEC and Iran.

But some analysts said that deeper cuts are needed, given the continued glut in oil supply.

Michael Poulsen, oil risk manager at Denmark-based Global Risk Management, said that bringing down oil stockpiles to their five-year average would probably require being "a bit more aggressive" in freezing production.

However, "if they can keep prices in this range until demand picks up, and not suffer too much, maybe they can push prices to $70 and even $80 in a few years," he added.

OM Financial's Stuart Ive said that oil is likely to trade from $50 to $60 a barrel near-term because of the extension.

Consultancy Wood Mackenzie said that such a deal leaves its 2017 price forecast of $55 unchanged.

Major oil producers, namely Saudi Arabia, have been under pressure from a reduction of oil revenues since prices plummeted in 2014. Crude has traded between $48 and $57 since December of last year, kept in range by concerns about mounting stockpiles but also greater optimism regarding global demand.

While oil producers are eager to push prices up by freezing output, staunch competition from U.S. shale producers, which are leaner and faster operations, tends to push prices back down whenever they go above a certain level. Stockpiles have mounted above historical averages.

U.S. crude inventory data released Wednesday by the Energy Information Administration was broadly upbeat for producers, showing the lowest overhang since December 2014.

"All of the sudden, reducing OECD stocks to the 5-year average by March next year does not seem mission impossible," said Tamas Varga, analyst at London-based PVM brokerage.

Nymex July diesel futures dropped 0.7% to $1.600 and ICE gasoil lost 1.5% to $473.25 per metric ton.

Write to Jon Sindreu at jon.sindreu@wsj.com and Biman Mukherji at biman.mukherji@wsj.com